Advisors Should Pitch An Alternative Retirement Approach That Focuses On Spending Habits Instead Of Saving

Wednesday

Jun 18, 2014 at 8:56 PM

Mamta Badkar

FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.

Advisors Should Try To Get Clients To Spend 50% Of Every Raise, Instead Of Saving 10% Of Income (Nerd's Eye View)

A retirement planning rule of thumb involves saving about 10% of your income. But doing this "also implicitly means you’re spending the other 90%, and continuing to do so over time means you'll also be saving (only) 10% and implicitly increasing your standard of living by 90% of ever raise you receive in the future," writes Michael Kitces at Nerd's Eye View.

Kitces has an interesting idea that he thinks advisors could pitch to clients. "By contrast, an alternative approach is to try to spend “just” 50% of each pay raise you receive in the future (implicitly saving the other 50%)," writes Kitces. "The end result of such an approach is that increases in the standard of living are more controlled and rise far more slowly, savings grow exponentially (to more than 20% of income within just a decade, even from a starting point of 0%!), and you can even retire early… all while feeling like your lifestyle is steadily rising as you’re still committed to spending more every year, just not increasing as rapidly as saving 10% of your income (and spending the rest)!"

What Advisors Should Remember When Reaching Out To Millennials (The Wall Street Journal)

While trying to reach out to young investors, advisors should remember that they are "are far less interested in the seeking out the next big investment opportunity than they are in financial information and knowledge," writes Grant Webster at AKT Wealth Advisors in a WSJ column. He also thinks it is a mistake for advisors to wait for Millennials to come to them "I think that the most successful advisers are going to be those who can reach out to this group and demonstrate their value," he writes. Finally, he said advisors should avoid jargon when speaking with young investors.

There were nearly 2 million new high net worth individuals (HNWI) in 2013, according to the latest World Wealth Report from Capegemini and RBC Wealth Management. Wealth among HNWI, which refers to those with over $1 million in assets, grew 13.8% to $52.62 trillion. Among Ultra-HNWI there was a marked shift away from wealth preservation to wealth growth. "A focus on wealth growth instead of preservation gained ground, particularly among ultra-HNWIs," according to the report. "Specifically, their preference for growth increased dramatically to 30.7% from 18.0% in 2013, while the focus on preservation declined from 44.8% to 27.6%."

"While HNWIs across the globe are still slightly more focused on preserving their wealth (28.6%) than growing it (27.6%), the percentage of respondents focused on preservation has come down from 32.7% a year earlier."

The Emergence Of America's Echo-Boomers Is A Very Under-appreciated Investment Theme (Business Insider)

Everyone's focused on major demographic changes coming with baby boomer retirement. But their children, dubbed the echo boomers, are emerging as a prominent force. "There are more 23-year olds than any other age group in the US today," said Deutsche Bank's Torsten Slok.

"This is an underappreciated investment theme across asset classes. The fact that the echo-boomers are coming has implications for household formations and housing demand in coming years, inflows into 401(k) accounts, demand for risky assets (younger cohorts tend to put their retirement savings in stocks rather than bonds), the amount of student debt outstanding (there are more young people and more young people get an education), and as the baby-boomers retire echo-boomers will come in and take the jobs of the baby-boomers but at a lower pay."

FINRA's has proposed a data collection system called Comprehensive Automated Risk Data System (CARDS), which aims to collect customer trade data to better detect fraudulent practices. Joyce Hanson at Investment News now reports that SIFMA president Kenneth Bentsen Jr is warning that, "policy makers and regulators must consider that these additional new rules … will have to be absorbed by the firms and ultimately their customers through additional costs or reduced services and choice."

See Also:

Social Media Engagement: The Surprising Facts About How Much Time People Spend On The Major Social NetworksWhy The Popularity Of Index Investing Hasn't Created The Expected Opportunity For Active InvestorsVANGUARD: A Combination Of Managers Is A Great Way To Diversify A Fund Toe-Dipping In Short-Term Debt Can Help Investors Stay In The Bond Market Irrespective Of Where Rates Go The Coming Era Of Longevity Risks An Overpricing Of Safe Assets